The UK’s manufacturing sector shrank at its fastest rate for more than three years in July 2012, a new survey revealed today.
The Purchasing Managers’ Index (PMI), compiled by the Chartered Institute of Purchasing & Supply (CIPS) and financial information services firm Markit, dropped to 45.4 last month, from a downwardly revised 48.4 in June. Anything below 50.0 indicates a contraction in activity.
July’s measure was the lowest on the monthly index since May 2009, and Markit/CIPS said that operating conditions have deteriorated in each of the past three months.
During July both output and new orders contracted sharply, as companies faced weaker demand from domestic and export customers. In particular, the level of new export business declined for the fourth month running and at the fastest pace since February 2009.
The number one reason for the slump in new export orders was said to be the ongoing weakness of the Eurozone market, although there were also some reports of a decline in new business received from Asia.
The figures from Markit/CIPS have raised expectations that the Bank of England will undertake further stimulus measures later in the year.
Official data released last week showed that the UK recession deepened in the second quarter, with the economy contracting by 0.7% between April and June following a 0.3% drop in the first three months of the year. The UK economy has now contracted for three quarters in a row and today’s Markit/CIPS manufacturing PMI indicates that the country faces an uphill struggle to emerge from recession over the summer.
Today saw the launch of the UK government’s £80bn Funding for Lending Scheme (FLS), which is designed to provide a boost to the economy by encouraging more lending to home buyers and small businesses.
The Treasury confirmed that the draw down window is now open for the next 18 months. From today, banks and building societies can borrow in the FLS at cheaper rates, for periods of up to four years. Institutions that lend more can then borrow more in the FLS, and at lower cost than those that scale back lending.